Armstrong Corporation started business on January 1, 2015. The board of director
ID: 2570148 • Letter: A
Question
Armstrong Corporation started business on January 1, 2015. The board of directors authorized the following classes of stock:
6% Cumulative preferred stock -$30 par value
Authorized: 60,000
Common Stock -$1 par value
Authorized: 250,000
The following transactions occurred during 2015:
1/1/15 . Issued116,000 shares of common stock at $12 per share.
3/2/15 . Issued 22,000 shares of preferred stockat a market price of $30. The dividend is payable semiannually on 9/1 and 3/1 beginning 9/1/15.
6/23/15 . Purchased 7,000 shares of treasury stock at $10per share.
9/1/15 . Paid the semiannual dividend on the 6% preferred stock.
10/1/15 . Purchased 15,000 shares of treasury stock at $11per share.
12/31/15 . Recorded a net loss of $264,600.
The following transactions occurred during 2016:
1/20/16 . Sold 9,800 of treasury stock at a market price of $13. Armstrong uses the weighted average method to account fortreasury stock.
2/15/16 . Declared a dividendof $.52 per common share.
3/1/16 . Paid the semiannual dividend on the 6% preferred stock and the common stock dividend declared on 2/15.
8/1/16 Purchased 6,000 shares of treasury stock at a market price of $11 per share.
8/15/16 Declared a 5% stock dividend on common shares outstanding when the market value of the stock was $11 per share.
9/1/16 . Paid the semiannual dividend on the 6% preferred stock.
10/15/16 .Issued 45,000 shares of common stock at a market price of $14 per share.
12/31/16 Recorded a net loss of $375,400 for fiscal year 2016.
Required:
1.Record journal entries for each of the 2016 transaction.
2.Prepare statements of stockholders’ equity for the years ending December 31, 2015 and 2016 in good form.
3.Calculate earnings-per-share for 2015 and 2016.
Explanation / Answer
1) Journal entries for 2016 transactions.
On 1/20/16
Cash - Debit $127,400
(9800shares*$13 per share)
To Additional paid-in capital - Credit $22,736
market price - weighted average price
$13 per share - $10.68 per share = 2.32*9800
To Treasury stock - Credit $104,664
(recording sale of treasury stock at market price)
on 2/15/16
Dividends - Debit $60,320
(116000*$.52 per share)
To Dividend payable common stock - Credit $60,320
(recording issue of dividend for common stock)
on 3/1/16
Dividend payable - Preference share- Debit $19,800
(22000 shares *$30*6% /2)
Dividend payable - common stock - Debit $60,320
To Cash - Credit $80,120
(recording the payment of respective dividends to respective share holders)
on 8/1/16
Treasury Stock - Debit $64,080
(Weighted average price $10.68*6000 shares)
Additional paid-in capital - Debit $1,920
(Weighted average price $10.68-$11= $0.32*6000 shares)
To Cash - Credit $66,000
(recording of the re purchase of treasury share)
on 8/15/16
Dividends - Debit $60,880.5
(97800 shares*$12.45 per share= $1,217,610*5%)
To Dividend payable common stock - Credit $60,880.5
(recording issue of dividend for common stock)
on 9/1/16
Dividend payable - Preference share- Debit $19,800
(22000 shares *$30*6% /2)
To Cash - Credit $19,800
(recording the payment of dividends to preference share holders)
on 10/15/16
Cash - Debit $630,000
(45000 shares *14 = $630,000)
To Common stock - Credit $630,000
(recording issue of common stock )
on 12/31/16
Retained Earnings - Debit $375,400
To Profit and loss account - Credit $375,400
(recording of net loss for 2016)
2) Statement of stockholders’ equity for the years ending December 31, 2015
Stock holder Equity 2016
Common stock, $12 per share, 116000 share issued
$18,48,400
6% Cumulative preference stock, $30 per share, 22000 share issued
$6,60,000
Gain from sale of treasury stock (market price - weighted average price - $13-$12.30 = $0.7per share *9800 shares)
$6,860
(loss) from sale of treasury stock (market price - weighted average price $11-$12.37 = -$1.37per share *6000 shares)
-$8,220
Gain from purchase of common stock (market price - weighted average price - $14-$12.45 = $1.55per share *45000 shares)
$69,750
Retained earnings
-$3,75,400
Total stock holder's equity
$22,01,390
3) Earnings-per-share
EPS= Total Earnings Outstanding shares
Total earnings = Net income - preference dividends
EPS for 2015 =
Total earnings = (-$2,64,600)-39600 (-$225,000)
Outstanding shares = 116000+22000-7000-15000 = 116000
= -$225,000
116000
= (-$1.93) per share
EPS for 2016 =
Total earnings = (-$3,75,400)-39600 (-$335,800)
Outstanding shares = 116000+9800-6000+45000 = 164800
= -$335,800
164800
= (-$2.03) per share
Stock holder Equity 2015 Common stock, $12 per share, 116000 share issued $11,57,000 6% Cumulative preference stock, $30 per share, 22000 share issued $6,60,000 Gain from purchase of common stock (Issue price - purchase price, $12-$10 = $2per share *7000 shares) $14,000 Gain from purchase of common stock (Weighted average price - purchase price, $12.13-$11 = $1.13per share *15000 shares) $16,950 Retained earnings -$2,64,600 Total stock holder's equity $15,83,350Related Questions
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